Bundle Wars: of overpricing, exploitation, and rumoured collusion

A contribution by a technology analyst who preferred to stay anonymous

Zambia’s raging telecom battle has all the ingredients of a ‘Hunger Games’ movie: the combination of rivalry, power plays, price cuts, and press conferences has investors, financiers, analysts, regulators and the government on the edge of their seats.

Let’s briefly go back in time to add a little context to the goings-on in one of Zambia’s most cut-throat industries.

Since her independence in 1964, Zambia’s economic sectors have undergone multiple transitions within the context of Dr. Kenneth Kaunda’s command economy and the free market instituted by second Republican President, Fredrick Chiluba.

One of the sectors which experienced serious transformation and competition after economic liberalization was telecommunication.

This industry can best be categorized as an oligopoly.

“Hey buddy, what’s an oligopoly?”

Well, since you asked so nicely, this is a market structure in which a small number of firms has the large majority of market share. An oligopoly is like a monopoly, except that rather than one firm, two or more firms dominate the market – at least that’s according to Investopedia.

It’s pretty obvious that Zambia has a very limited number of telecommunications companies who compete for the same customers; and based on recent goings-on in the sector, one might even argue that the companies operating seem to deter any entry by other telcos on the pretext that the market is very small and can’t accommodate numerous firms.

Three companies dominate this market: Airtel Zambia, MTN Zambia and Zambia Telecommunication Company (ZAMTEL).

This was the market status quo until Vodafone Zambia entered in June of 2016 with a $40million initial investment – at least according to the company’s official press release.

Vodafone Zambia, the product of a partner market agreement between Vodafone UK and Afrimax, is an operator that functions in the 4G data space, as it has not been granted a license to provide voice services.

The commercial launch of Vodafone Zambia’s 4G infrastructure made it the second operator to launch 4G, after MTN Zambia, albeit much more aggressively.

Now, while Zambia has over 12 million mobile phone service subscribers representing a penetration rate of almost 75 percent, according to latest government statistics, it only has just over 5 million people accessing the internet. Of this 5 million, the 4G market is composed of roughly 300,000 users.

Therefore, MTN and Vodafone have been at the centre of the 4G fight for LTE market share. This gave them an edge over both Airtel and ZAMTEL, that were 3G reliant.

THE PRICING TRUMP CARD

Not to be outdone by its competitors, in terms of both product offering and perception, Airtel not only launched 4G sites in certain parts of the country, but it did so by kick-starting a fierce price war. Where it was, for example, selling a 10GB data bundle at K700 ($70), the operator increased the volume of the bundle to 12GB and significantly lowered the price to K200 ($20)!!! Across All bundle categories (i.e., daily, weekly and monthly) the telco cut its pricing by approximately 75%.

Let’s all take a moment to reflect on that – seventy-freaking-five percent! Amazing!

It got a lot more exciting, within 24 hours of this, MTN and ZAMTEL followed suit by slashing their data rates; MTN by as much as 82%.

Again, let’s all take a moment to reflect on that – eighty-freaking-two percent!

We (customers) were loving it! We were eating it all up. Data was falling! We managed to achieve what South African consumers were unable to do with their #DataMustFall campaign, with only a fraction of the effort they put in. Hooray to us!

Social media was literally on fire with people showering praise on the operators – forget the fact that just a couple weeks back, Airtel received severe backlash for its botched network upgrade.

Amid all the understandable euphoria, I had a couple of questions – and while scrolling through my twitter, I noticed I wasn’t the only one.

Laura Miti, a prominent social justice activist and Mawano Kambeu, an e-commerce entrepreneur, raised interesting and thought-provoking questions on their twitter platforms.

“The bigger issue here is how can the cost of a product go from k405 to K100 overnight? What sort of insane profits were being made before one of them named Airtel did them a Ka Judas?” said Kambeu.

Or in the words of Laura Miti: “With the price slashing, MTN, Airtel and ZAMTEL should retrench workers, cut back on their flashy ways etc as they are now surely selling as data (sic) below cost. Unless of course it was waaaaaaaaaaaaay overpriced.”

These are valid questions. Have we been played for all these years? Were we overpaying for a service that allowed the operators to make ridiculous profits at our expense?

If so, then why cut prices so drastically? It’s not like the pressure to reduce prices from the consumers was overwhelming – in fact, one might even argue that we (customers) were in a state of docility. So why cut costs if you were making a killing?

I’d like to bring Vodafone back into this. It’s no secret that when Vodafone entered the market they introduced relatively cheaper bundles and got quite a huge chunk of market share in the data space – something dominant players in an oligopoly would not ordinarily accept.

Is it possible that the three operators…colluded in an attempt to return the market to its “glorious” three-horse race position?

I know what some of you are thinking, “Did this person just use the C-word”

Look, you don’t need to call it the “C-Word,” companies collude all the time – it’s a general business practice used the world over.

Why else would collusion be possible? Why would three major operators that have operated in the Zambian market for over 10 years each, made significant profits, have the financial muscle even concern themselves with a start-up operator only functioning in the data space?

I have my own little theory: Other than getting a fraction of each of their data customers, word on the street is Vodafone Zambia is on the verge of acquiring a voice license, making it the fourth mobile operator in the country. Now this news adds an interesting dynamic that makes the collusion story a little more believable – or at least worth thinking about.

There is no concrete evidence that there was any collusion, but it is not unreasonable in light of how it all unfolded. Maybe the MNOs in the current oligopolistic structure never overpriced consumers; maybe they didn’t exploit us for years with their pricing; maybe they didn’t collude to kick a competitor, that threatens their data and potential voice revenues, out of the market. Maybe none of this stuff ever happened.

But, what if it did?

Well, we have cheaper bundles now, hooray – right? Who cares about crazy conspiracy theories? Let me know what you guys think.